Mervyn the magician?
Yesterday we gave you an overview of why and how the Bank of England will be boosting the money supply to boost the economy. What was the reaction from the markets and commentators?
The markets appeared to signal their approval, with interest rates on 10-year gilts (the Treasury bonds that the BoE is likely to purchase) falling to their crisis lows.
An FT leader signalled its approval by suggesting the ECB should follow the Bank's lead and adopt quantitive easing for the eurozone.
The Economist agrees, saying
"...the main purpose of quantitative easing is not to send the money supply into orbit but to stop it from crashing."
Dan Robert's at the Guardian has his eye firmly fixed on the next crisis and thinks the BoE's actions may assuage some concerns that insurers will be the next casualties of the global financial crisis:
"By buying up corporate debt, the Bank of England not only makes it easier for companies to borrow money directly (thus circumventing the broken banking industry) it also drives up the price of existing corporate debt trading in the market. Purists may argue this will make no difference to the long-term solvency of insurers, but it should at least help things look better."
In sum, the general view seems to mesh with ours: its the right move because it will help stave off a particularly deep downturn in the short run.
(NB: hat tip to The Economist for the picture above.)